Tuesday, March 31, 1931: Dow 172.56 -1.50 (0.9%)

Assorted historical stuff:

Editorial by T. Woodlock: Summarizes “notable address” by Hans Luther, Reichsbank pres.: German people have handled unemployment involving a quarter of workers with only slight increase in national debt. Solution of current problems must not involve another inflation, which would destroy all that has been accomplished since the mark was stabilized. Germany is a “crowded people ... economically intertwined with the other nations”; solution must be a world one, and involve free-market system, which history shows best able to create progress. Reparations payments force money to flow “contrary to its economic course” and become immobilized by “political or psychological conditions.” Logical solution would be increasing exports, but precisely because everyone can see that, other nations, in violation of the Young plan, are trying to exclude German exports, and are politically interfering with international lending. Comment by Woodlock: What Dr. Luther naturally doesn't say, but is clear, is that we've made it “quite certain that we can only collect reparations from Germany at the price of handing her the commercial hegemony of the world. Perhaps it might after all have been good strategy for Dr. Luther to have said that!”

Editorial: Australian bonds are recovering as investors become aware move to repudiate New South Wales bonds “does not originate in any desire of the people,” but in a radical minority that “opposes capitalism in all forms. Unfortunately the premier of New South Wales heads that minority.” A similar recovery took place in German bonds as investors saw “solid Germany rallying to repudiate Hitlerism.” Premier Lang has aroused a storm of protest, extending even to his own party, that is likely to sweep him from the stage.

Editorial: British Conservative leader Baldwin has now adopted tariff protection for agriculture; thus, tariffs have made headway even in the old home of free trade, and, if the Labor govt. falls, will become a decisive issue in the next election. Apparently Conservatives have decided “that hair from the dog that bit you is the right cure for dog-bite.”

Weather Bureau reports recent beneficial rains have broken last year's drought (restored normal amount of moisture in both top- and sub-soil) everywhere except areas of Iowa, Minnesota, the Dakotas, and Atlantic states south through Virginia. Conditions were helped materially even in sections still short of moisture.

White House indicates Pres. Hoover will keep hands off the wheat situation, leaving it entirely to the Farm Board.

“In striking contrast with the modern industries which are housed in plants which are literally glass houses,” a steel processing firm is completing a windowless plant near Fitchburg, Mass. with filtered air and completely controlled temperature, humidity and lighting, allowing a new degree of exactness in the product.

Regular Bell telephone service to island of Java to start Apr. 1, using land lines, transatlantic telephone, submarine cable, and short-wave radio. There are 30,000 phones on the island. Number of telephones now in South Africa is "approximately 100,000, or one for every 18 whites."

French Air Ministry negotiating for "Romeiser" Russo-German lightweight airplane engine said simpler and more economical to operate than best current engines.

Boat in which Gar Wood set world speed record of 102.256 mph was equipped with two 1,100 hp Packard engines that survived two previous wrecks unharmed.

NY City transit unification bill currently blocked by Republican State Sen. Knight, who insists on giving some agency other than the mayor and transit companies a voice in the proposed Board of Transit Control; this is unacceptable to the city administration.

A famous globetrotter says many of the world's great cities can be recognized instantly by their smells, for example: London - fog and gasoline; Paris - tobacco and charcoal; Berlin - ink; Vienna - sawdust; Marseille - flowers and fish; Madrid - cigars and vegetables; San Francisco - "a tonic atmosphere charged with the scent of fog"; New York - "assails one with a peculiarly exhilarating atmosphere, which has no particular odor."

Market commentary:

Market wrap: Stocks opened under heavy sell orders accumulated over the weekend, with bear pressure also continuing; leading shares declined; however, fairly good support came in "on a scale down" and limited setbacks; market steadied around noon and made weak attempt at rally, but decline resumed in the last hour, with day's lows near the close. Bonds generally under pressure; US govts rose slightly; foreign irregular though Australian continued rally; corp. highest grade utility steady but rest of the list heavy, with rail, speculative and convertible issues particularly weak. Commodities mixed; grains fluctuated sharply; wheat plunged early to new season low but rallied to close higher; corn followed wheat movements but closed mixed; other grains fell sharply; cotton down substantially.

Market sentiment continues pessimistic, though conservative observers believe a technical rally is overdue after the sharp recent setback.

Discouraging factors for bulls included sharp early break in grains (though they rallied to close higher), poor rail earnings, and decline in US Steel, accompanied by rumors of lower automotive steel demand.

Dow Theory special: students note rails again gave accurate market signal. On March 17, rails dropped to level representing loss of over 50% of the rally from Dec. 16, indicating more-than-technical decline; rails then fell 10 sessions out of 12 while industrials declined from 183.61 to 172.56. Dow theory students will now carefully watch support for rails between current 97.54 and the 1930 low of 91.65, reached Dec. 16. If main rails hold above 1930 lows, this would strongly indicate bear market had bottomed; if they break through 1930 lows, together with industrials, this would indicate the whole market was headed lower.

Major industrials have received support above this year's lows, probably due to a sounder technical position for the market rally since early Dec. than for the superficially similar rally from Dec. 1929 to early 1930. That rally involved a sharp rise in speculative buying on margin, with brokers' loans rising $946M; on the other hand, during the current rally brokers' loans have actually declined, from $2.008B to $1.908B.

Positions of several bull pools reportedly weakened by recent sharp bear drives; pools have been discouraged by inability to attract public following into their stocks, quite a few of which have broken down through resistance levels; some groups have stopped operations and withdrawn support orders.

While general business reports continue to indicate slight improvement, the Street is concerned with conditions in basic industries, where news has been less encouraging. "Keen competition and price cutting" is reported in steel; copper is suffering from limited demand and rumors of price shading; oil also looks cloudy.

Steel sheets (used in auto production) are weakest part of the steel market, with demand weak and price "shading" again rampant; "It is reported in responsible quarters that, when attractive inquiries come into the market, sheets have been selling generally at whatever price the consumer is willing to pay." Bethlehem Steel's annual report revealed sharp decrease in cash and securities on the balance sheet, raising concern about continuation of dividends. Alaska Juneau Gold Mining bucked the market, rising on rumors of new ore bodies.

Broad Street Gossip: As result of the recent sharp decline, “many are advising caution, and the lower stocks go,the more emphatic that advice will become. When the market turns upward, 'notes of caution' become few. It always has been thus and always will be ...” Paine,Webber pick the six stocks “most typically representative of industrial America”: American Can, AT&T, GE, GM, Union Carbide, and US Steel. Recent news on earnings and dividends has been bad, “but the feeling that business will be materially better before the end of the year continues.” One broker refers to a “creeping trade improvement.”

Fed. Reserve report showing credit outstanding of $858M, lowest since 1924, “gives an impression of liquidation which is wholly misleading.” In fact, “effective credit base” consisting of gold plus Fed. Reserve credit has shown no more than normal seasonal contraction this year; as of Mar. 25, it was $5.547B, vs. $5.445B a year ago and $5.591B two years ago. “These figures indicate how unfair are the accusations frequently made that the Fed. Reserve banks have allowed credit contraction to take place ... The Fed. Reserve has maintained a large portfolio of govt. securities to prevent undue credit contraction.” Reports of national banks and several state banking system shows usual seasonal pattern of declines in deposits in big cities and increases in more rural areas, although decline in NY City is more pronounced than usual due to business recession.

Guaranty Trust says this month's developments “present the most encouraging signs in some time”; see “strong indication that the business curve is at least scraping bottom,” though recovery “will be a slow and uneven process.”

Economic news and individual company reports:

Agriculture Dept. estimates wheat crop of 825M bushels this year, leaving exportable surplus of 125M over domestic needs, plus 250M carryover in Farm Board hands. National Grange (farmers' assoc.) demands enactment of export debenture or similar plan to replace stabilization policy abandoned by Farm Board. Bureau of Agric. Economics reports index of farm prices Mar. 15 was 91 vs. 90 a month earlier, first rise since Sept. but down 35 from a year earlier.

Current rail earnings predict more dividend cuts to come. Of 20 representative dividend-paying rails, only 11 earned their dividends in the year ended Feb. 28 even after 7 recent dividend cuts; 7 of the 20 are selling for less than 10 times earnings. First 65 rails reported Feb. net operating income down 51.1% from 1930.

GM sales in Q1 will be about 295,000 cars and trucks, down 20% from 1930; Q1 earnings estimated at $0.59/share; co. has made strong competitive gains vs. rest of the industry; trends are favorable, and the co. may cover its dividend in the first half ($1.50).

Union Oil of Calif. cuts crude purchasing price 30 - 35 cents/barrel; third cut in past three weeks.

Standard Oil of Indiana agrees to curtail its Venezuela production and imports by 23% for 60 days, joining all other major importers in agreeing to curtail.

Motion Picture Producers' and Distributors' Assoc. reports weekly US box office about $30M, attendance 115M; 17,097 theaters, 13,515 wired for sound.

Dept. of Justice asks dissolution of Sugar Institute (assoc. of cane sugar refiners producing 85% of US sugar) on grounds of price fixing.

Australian PM Scullin says govt. will pay interest on British war debt that state of New South Wales is defaulting on, after receiving legal opinion federal govt. is liable for state debts. New South Wales premier Lang introduces bill limiting interest rates on deposits to 1 1/2% - 3% and on govt. debts to 3%; says confronted with “repudiation of their debts, the Australian governments must realize the duty of formulating a proposal to avoid national bankruptcy.” Federal govt. Treasurer Theodore introduces similar bill to reduce interest rates, defends proposal to exit gold standard; says banknote issue will be limited to $300M, backed by securities.

Canadian employment index Mar. 1 was 100.2 vs. 100.7 prev. month and 110.2 on Mar. 1, 1930; Feb. showed improvement in manufacturing.

General coal strike averted in France as coal miners and owners agree on 6% wage cut. German labor strife threatens after coal and iron mines seek larger cut than the 6% set by government arbiter in Jan.

German capital has been returning in recent weeks, lowering money rates and bringing talk of a possible cut in the 5% Reichsbank rate. German circles feel worst of the crisis past; adjournment of Reichstag until Oct. and rule by decree now considered favorable, though decree was surprising and at first slightly disturbing.

AP Moscow reports Russian plan to mine coal with machinery has resulted in output 46% below plan.

Argentine farmers move to burn much of corn crop as fuel in factories and electric plants due to low prices for grain. Argentine Feb. exports were $111.5M, down 18% from 1930; imports were $105.5M, down 22.6%.

US Steel reports common stockholders as of the Mar. dividend date were 149,122, up 7,215 in the prev. quarter and up 25,053 in the prev. year. General Foods reports stockholders now 42,773, up 10,708 in the past year.

Goodyear cuts annual dividend rate from $5 to $3. Gillette 1930 net $3.25/share vs. $4.65. R.H. Macy 1930 net $4.81/share vs. $6.70.

Both Mead Johnson and Cuneo Press declined sharply in spite of strong earnings; both had recently run up to new yearly highs. Cuneo closed at 34, after recently reporting 1930 net of $6.96/share; Mead Johnson at 101 1/2 after reporting $9.51/share, its 10th consecutive earnings increase; earnings so far in 1931 are reportedly running at $13/share annual rate.

Companies reporting decent earnings: F. & R. Lazarus (department stores), Chesebrough Mfg. (Vaseline), Horn & Hardart (self service restaurants).

Theatre:

After a trying season involving ventures with experimental fare such as Miracle at Verdun, the Theatre Guild now turns back to “that old stand-by, George Bernard Shaw.” That sharp-tongued dramatist, who “had to fight his way into the London theatre, and whom Irving would have kept out forever, becomes in 1931 the old ... restful friend. ... Mr. Shaw now stands on the safe middle ground, somewhere between Shakespeare ... and S.M. Tretyakov,” whose Roar China involved a battleship set “so huge that the Guild could not float it around its subscription circuit.”

Joke:

"'Sorry, but you're too late for the job. I've already had 25,000 applications.' 'Well, what about employing me to classify the applications?'"

'Make a sentence using the word diadem.' 'People who hurry across railroad crossings diadem sight quicker than people who stop and look.'